*Updated April 2026 · Based on TRAIN Law (RA 10963), Tax Code (NIRC), and current BIR Revenue Regulations*
If you're selling real property in the Philippines, the Capital Gains Tax (CGT) is likely the single largest cost you'll face. At 6% of the tax base, it can easily run into hundreds of thousands of pesos — and it must be paid before BIR will issue the clearance needed to transfer the title.
Worse, many sellers discover at BIR that their tax isn't computed on their selling price but on a higher BIR zonal value they've never heard of. That surprise can add tens of thousands of pesos to the bill.
This guide covers everything you need to know: how CGT is computed, who pays, when to file, the principal residence exemption, and how CGT differs from VAT for property dealers.
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Capital Gains Tax is a 6% tax imposed on the sale, exchange, or disposition of real property classified as a capital asset in the Philippines.
Key points:
Under the Tax Code, a capital asset is any property that is not:
In simple terms: if you're selling your personal residential lot or house and lot, it's a capital asset and subject to CGT. If you're a real estate developer selling inventory, it's an ordinary asset subject to income tax and VAT instead.
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The formula is:
CGT = 6% × Tax Base
The tax base is the highest of:
1. Selling price — the actual amount stated in the Deed of Absolute Sale 2. BIR zonal value — the per-sqm value assigned by BIR to your street/barangay, multiplied by lot area 3. Fair market value (FMV) — from the local Assessor’s Office tax declaration
This "highest of three" rule is what catches most sellers off guard.
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Property: 150 sqm residential lot in Laguna Selling price: PHP 2,000,000 BIR zonal value: PHP 10,000/sqm × 150 sqm = PHP 1,500,000 Assessor's FMV: PHP 1,200,000
Tax base = PHP 2,000,000 (highest)
| | Amount | |---|---| | Tax base | ₱2,000,000 | | CGT (6%) | ₱120,000 |
No surprise here — the selling price is highest, so that's the basis.
Property: 100 sqm residential lot in Quezon City Selling price: PHP 2,000,000 BIR zonal value: PHP 30,000/sqm × 100 sqm = PHP 3,000,000 Assessor's FMV: PHP 2,200,000
Tax base = PHP 3,000,000 (highest)
| | Amount | |---|---| | Tax base | ₱3,000,000 | | CGT (6%) | ₱180,000 |
The seller expected to pay PHP 120,000 but owes PHP 180,000. The zonal value exceeded the actual selling price by PHP 1,000,000, adding PHP 60,000 to the tax bill.
This happens frequently in Metro Manila, Cebu, and other urban areas where BIR zonal values have been updated but market prices have softened.
Property: 500 sqm commercial lot in Cebu City Selling price: PHP 10,000,000 BIR zonal value: PHP 18,000/sqm × 500 sqm = PHP 9,000,000 Assessor's FMV: PHP 8,500,000
Tax base = PHP 10,000,000 (highest)
| | Amount | |---|---| | Tax base | ₱10,000,000 | | CGT (6%) | ₱600,000 |
On high-value properties, CGT alone can reach six or seven figures.
Don't get surprised at BIR. Check your property's official zonal value before computing your CGT. Look up BIR zonal value →
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Missing the 30-day filing deadline triggers automatic penalties:
| Penalty | Rate | |---|---| | Surcharge | 25% of tax due | | Interest | 12% per year from deadline until payment | | Compromise penalty | PHP 1,000 – PHP 25,000 (at BIR's discretion) |
Example: PHP 180,000 CGT filed 1 year late:
That's an additional PHP 66,600 — or 37% more — just for missing the deadline.
If the late filing is due to fraud or willful neglect, the surcharge increases to 50%.
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There is one exemption from CGT: the sale of your principal residence.
Under Section 24(D)(2) of the Tax Code, CGT is not imposed on the sale of a principal residence if all of the following conditions are met:
1. The property is your actual principal residence — certified by the barangay captain 2. The proceeds are fully used to acquire a new principal residence within 18 months from the date of sale 3. The exemption is availed only once every 10 years 4. The seller notifies the BIR Commissioner within 30 days of the sale 5. An escrow agreement is executed depositing the 6% CGT with an authorized agent bank. The escrow amount is returned when the new residence is acquired within 18 months. If not used, BIR collects the escrow.
This exemption is powerful but has strict requirements. The escrow deposit means you still need the cash upfront — you just get it back if you reinvest in a new home.
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Not all real property sales are subject to CGT. If the property is classified as an ordinary asset (used in trade or business, or held for sale by a real estate dealer), the sale is subject to income tax and VAT instead.
| | Capital Gains Tax | VAT | |---|---|---| | Applies to | Capital assets (personal property) | Ordinary assets (business property) | | Rate | 6% | 12% | | Who pays | Seller | Seller (passed to buyer) | | Threshold | No threshold | Gross sales > PHP 3,000,000* | | Filed with | BIR Form 1706 | BIR Form 2550M/Q |
*Note: Effective January 2023, the VAT threshold for real property dealers is gross annual sales exceeding PHP 3,000,000. Properties sold below this threshold by non-VAT registered sellers are subject to 3% percentage tax.*
If you're unsure, check with your RDO. Misclassifying the asset type can result in deficiency tax assessments.
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CGT is just one of the costs when selling property. Here is the complete picture:
| Cost | Rate | Paid By | |---|---|---| | Capital Gains Tax | 6% | Seller | | Documentary Stamp Tax | 1.5% | Buyer (usually) | | Transfer Tax | 0.5% – 0.75% | Buyer | | Registration Fee | LRA schedule | Buyer | | Notarial Fee | 1% – 2% | Negotiable | | Broker's commission | 3% – 5% (if applicable) | Seller | | Seller's total cost | ~9% – 11% | |
Example: Selling a PHP 5,000,000 property:
The buyer pays DST (PHP 75,000), transfer tax (PHP 25,000–PHP 37,500), and registration (~PHP 30,000).
Get the exact breakdown for your property. Our valuation report computes all transfer taxes based on your specific BIR zonal value. Get your tax computation →
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By law, CGT is the seller's responsibility. However, buyer and seller can agree in the Deed of Absolute Sale that the buyer shoulders the CGT. This is common in "net of tax" deals. Regardless of who physically pays, the BIR Form 1706 is still filed under the seller's name and TIN.
BIR will compute the tax based on the zonal value (since it's higher). You cannot avoid this by under-declaring the selling price. Under-declaration is illegal and can result in penalties, fraud charges, and criminal prosecution.
No. Unlike in some countries, the Philippine Tax Code does not allow deductions for cost basis, improvements, or acquisition cost when computing CGT on real property. The 6% is applied to the gross amount (tax base), not the gain.
If the property is sold on installment (where initial payment does not exceed 25% of the selling price), the seller may elect to report the CGT on the installment basis. The 6% is applied to each installment payment as received. File BIR Form 1706 for each payment.
No. Donated property is subject to Donor's Tax (6% of fair market value exceeding PHP 250,000 annual exemption), not CGT. CGT only applies to sales, exchanges, and similar dispositions.
No. Inherited property is subject to Estate Tax (6% of net taxable estate), not CGT. However, if the heirs later sell the inherited property, that sale will be subject to CGT.
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*This article is for general information only. CGT rules, zonal values, and BIR procedures may change. For complex transactions involving multiple properties, installment sales, corporate sellers, or mixed-use assets, consult a licensed CPA or tax attorney.*
*Last updated: April 2026 · LandValuePH.com*